SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 10549
FORM 10-QSB/A
(Amendment No.1)
(Mark One)
[x] Quarterly report under Section 13 or 15(D) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2003
__________________
[ ] Transition report under Section 13 or 15(D) of the Exchange
Act
For the transition period from __________ to _________
Commission file number 0-15888
_______
IGENE Biotechnology, Inc.
_________________________________________________________________
(Exact name of Small Business Issuer as Specified in its Charter)
Maryland 52-1230461
_______________________________ ___________________
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
9110 Red Branch Road, Columbia, Maryland 21045-2024
___________________________________________________
(Address of Principal Executive Offices)
(410) 997-2599
________________________________________________
(Issuer's Telephone Number, Including Area Code)
None
____________________________________________________
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the Issuer: (1) filed all reports required to be filed
by Section 13 or 15(D) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes [ ] No [x]
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
101,732,453 shares as of July 27, 2005.
_______________________________________
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [x]
Explanatory Note:
As disclosed in the Notification of Late Filing filed by Igene
Biotechnology, Inc. (the "Registrant") with the Commission on April
1, 2005 (the "Notification"), Berenson LLP ("Berenson"), the
Registrant's independent registered public accounting firm, has
questioned the Registrant's historical method of recording the value
of its 50% interest in its joint venture with Tate & Lyle PLC (the
"Joint Venture"), as reflected in the Registrant's previously issued
consolidated financial statements contained in the Registrant's
Annual Report on Form 10-KSB for the year ended December 31, 2003 and
consolidated interim financial statements contained in the
Registrant's Quarterly Reports on Form 10-QSB for the quarterly
periods ended March 31, 2004, June 30, 2003 and 2004, and September
30, 2003 and 2004 (collectively, the "Financial Statements").
As disclosed in the Notification, the Registrant contacted the Office
of Chief Accountant of the Commission requesting further guidance on
this accounting matter. The Registrant engaged in discussions with
the Staff of the Commission relating to the accounting treatment of
the Registrant's interest in the Joint Venture. The Commission
advised the registrant that the historical accounting treatment was
not appropriate. In a letter dated May 12, 2005, and received by the
Company on the same date, Berenson notified the Registrant that the
Financial Statements should no longer be relied upon because of
errors in those Financial Statements. The Registrant is now in the
process of correcting and restating the Financial Statements (the
"Restatement"). The Registrant plans to file such restated Financial
Statements as soon as is practicable after the necessary corrections
have been made.
The historical Financial Statements filed with the Commission treated
the Registrant's investment in the Joint Venture under the equity
method of accounting as a one-line caption on its consolidated
balance sheet and consolidated statement of operations with the
excess of fair value of such investment in the Joint Venture over the
historical cost basis of consideration paid for such investment
reflected as an adjustment to additional paid-in capital.
The Restatement of the Financial Statements pertains primarily to the
manner in which the Registrant recorded the investment in the Joint
Venture in the Financial Statements. The Registrant has been advised
that while the Registrant's investment in the Joint Venture has been
correctly accounted for under the equity method of accounting as a
one-line caption on its consolidated balance sheets and consolidated
statements of operations, the Registrant's investment in the Joint
Venture should have been recorded at an amount equal to the value of
the Registrant's consideration contributed at the creation of the
Joint Venture (not as the excess of fair value of the Registrant's
investment in the Joint Venture over the historical cost basis). As
a result, the investment in the Joint Venture should have been
initially recorded with a value of $316,869; rather than the
$12,300,000 initially recorded in the Financial Statements.
The classification of the Company's preferred stock as liabilities in
accordance with Statement of Financial Accounting Standards No. 150
"Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity" ("FASB 150"), which became effective in
the third quarter of 2003. Amounts previously treated as dividends
have been classified as interest expense.
In addition, the restatement includes a $120,000 accrual of dividends
on preferred shares, Series B, which was not originally accrued until
year end as part of a $150,000 dividend accrual. It will now be
reflected as $90,000 in the second quarter and $30,000 in each of the
subsequent quarters, recognizing the quarterly amounts through the
year rather than reflecting the entire accrual at year end. In
accordance with FASB 150, the dividends accrued in the third quarter
2003 and thereafter have been reclassified to interest expense. This
reclassification reduces income by $34,096.
For the convenience of the reader, this Form 10-QSB/A sets forth the
Form 10-QSB originally filed with the SEC on November 14, 2003 (the
"Form 10-QSB") in its entirety. However, this Form 10-QSB/A only
amends and restates Items [1 and 2 of Part I] of the Form 10-QSB, in
each case, solely as a result of, and to reflect the Restatement and
no other information in the Form 10-QSB is amended hereby. The
foregoing items have not been updated to reflect other events
occurring after the original filing date of the Form 10-QSB or to
modify or update those disclosures affected by subsequent events. In
addition, pursuant to the rules of the SEC, Item 6 of Part II of the
Form 10-QSB has been amended to contain currently-dated
certifications from the Company's Chief Executive Officer and Chief
Financial Officer, as required by Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002. The certifications of the Company's
Chief Executive Officer and Chief Financial Officer are attached to
this Form 10-QSB/A as Exhibits 31(a), 31(b), 32(a) and 32(b).
Except for the foregoing amended information, this Form 10-QSB/A
continues to speak as of the original filing date of the Form 10-QSB,
and the Company has not updated the disclosure contained herein to
reflect events that occurred at a later date. Other events occurring
after the filing of the Form 10-QSB or other disclosures necessary to
reflect subsequent events are addressed, or will be addressed, in
subsequent filings with the SEC.
FORM 10-QSB/A
IGENE Biotechnology, Inc.
INDEX
PART I - FINANCIAL INFORMATION
Page
Consolidated Balance Sheets ............................. 5-6
Consolidated Statements of Operations ................... 7
Consolidated Statements of Stockholders' Deficit ........ 8-9
Consolidated Statements of Cash Flows ................... 10
Notes to Consolidated Financial Statements .............. 11-15
Management's Discussion and Analysis of Financial
Conditions and Results of Operations .................... 16-21
PART II - OTHER INFORMATION ................................ 22-24
SIGNATURES ................................................... 25
EXHIBIT INDEX ................................................ 26
IGENE BIOTECHNOLOGY, INC.
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
IGENE Biotechnology, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30, December 31,
2003 2002
_____________ _____________
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 26,849 $ 497,711
Accounts receivable (net of allowances of $24,000 in 2002) 124,341 528,065
Inventory --- 374,709
Prepaid expenses and other current assets 100,157 192,993
Assets to be disposed of --- 628,326
Deferred costs, current portion --- 74,160
_____________ _____________
251,347 2,295,964
OTHER ASSETS
Property and equipment, net 172,468 196,258
Deferred costs, net of current portion --- 187,753
Investment in and advances to Joint Venture 26,560 ---
Equipment deposits --- 199,685
Loans receivable from manufacturing agent 211,925 324,405
Other assets 4,886 5,188
_____________ _____________
TOTAL ASSETS $ 667,186 $ 3,209,253
============= =============
The accompanying notes are an integral part of the financial statements.
-5-
IGENE Biotechnology, Inc. and Subsidiaries
Consolidated Balance Sheets
(continued)
September 30, December 31,
2003 2002
_____________ _____________
(Unaudited)
LIABILITIES, REDEEMABLE PREFERED STOCK
AND STOCKHOLDERS'DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 77,674 $ 595,646
Notes payable - directors --- 250,000
Liabilities to be disposed of --- 655,763
Equipment lease payable 2,322 3,590
_____________ _____________
TOTAL CURRENT LIABILITIES 79,996 1,504,999
LONG-TERM LIABILITIES
Notes payable 6,043,659 6,043,659
Convertible debentures 4,814,212 4,814,212
Equipment lease payable, net of current portion --- 1,205
Accrued interest 3,227,904 2,700,865
_____________ _____________
REDEEMABLE PREFERRED STOCK
Carrying amount of redeemable preferred
stock, 8% cumulative, convertible,
voting, series A, $.01 par value per
share. Stated value was $ 17.60
and $17.12, respectively. Authorized 1,312,500
shares, issued 25,605 and 26,155 shares, respectively. 450,648 447,774
_____________ _____________
Carrying amount of redeemable preferred stock,
8% cumulative, convertible, voting, series B,
$.01 par value per share. Stated value was $8.64 and
$8.00 per share, respectively.
Authorized, issued and outstanding 187,500 shares.
Redemption amount $1,620,000 at September 30, 2003. 1,620,000 1,500,000
_____________ _____________
TOTAL LIABILITIES 16,237,419 17,012,714
_____________ _____________
STOCKHOLDERS'DEFICIT
Common stock --- $.01 par value per share.
Authorized 750,000,000 shares;
issued and outstanding 88,011,387
and 92,943,746 shares, respectively. 880,114 929,437
Additional paid-in capital 22,229,711 22,387,604
Deficit (38,679,058) (37,120,502)
_____________ _____________
TOTAL STOCKHOLDERS'DEFICIT (15,569,233) (13,803,461)
_____________ _____________
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 667,186 $ 3,209,253
============= =============
The accompanying notes are an integral part of the financial statements.
-6-
IGENE Biotechnology, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three months ended Nine months ended
______________________________ ______________________________
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
_____________ _____________ _____________ _____________
REVENUE
_______
Sales - AstaXin(R) $ --- $ 1,240,278 $ 463,486 $ 2,409,193
Cost of sales - AstaXin(R) --- 1,136,670 444,946 2,171,311
_____________ _____________ _____________ _____________
GROSS PROFIT --- 103,608 18,540 237,882
_____________ _____________ _____________ _____________
OPERATING EXPENSES
__________________
Marketing and selling 57,265 133,635 277,120 405,052
Research, development and pilot plant 198,195 162,540 576,596 484,557
General and administrative 172,804 540,674 557,131 928,669
Litigation expense 75,610 --- 75,610 ---
Less expenses reimbursed by Joint Venture (327,310) --- (891,691) ---
_____________ _____________ _____________ _____________
TOTAL OPERATING EXPENSES 176,564 836,849 594,766 1,818,278
_____________ _____________ _____________ _____________
OPERATING LOSS (176,564) (733,241) (576,226) (1,580,396)
_____________ _____________ _____________ _____________
EQUITY IN EARNINGS(LOSS)OF UNCONSOLIDATED SUB (222,000) --- (569,000) ---
INTEREST EXPENSE (267,635) (300,520) (650,767) (824,011)
_____________ _____________ _____________ _____________
NET LOSS FROM CONTINUING OPERATIONS (666,199) (1,033,761) (1,795,993) (2,404,407)
_____________ _____________ _____________ _____________
DISCONTINUED OPERATIONS
_______________________
Net loss from discontinued operations --- (207,629) --- (340,632)
Gain on disposal of discontinued operations --- --- 237,437 ---
_____________ _____________ _____________ _____________
NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS --- (207,629) 237,437 (340,632)
_____________ _____________ _____________ _____________
NET LOSS $ (666,199) $ (1,241,390) $ (1,558,556) $ (2,745,039)
_____________ _____________ _____________ _____________
BASIC AND DILUTED NET LOSS PER COMMON SHARE
FROM CONTINUING OPERATIONS $ (0.01) $ (0.01) $ (0.02) $ (0.03)
_____________ _____________ _____________ _____________
BASIC AND DILUTED NET LOSS PER COMMON SHARE
FROM DISCONTINUED OPERATIONS $ (0.00) $ (0.00) $ (0.00) $ (0.00)
_____________ _____________ _____________ _____________
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.01) $ (0.01) $ (0.02) $ (0.03)
============= ============= ============= =============
The accompanying notes are an integral part of the financial statements.
-7-
IGENE Biotechnology, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Deficit
(Unaudited)
Redeemable Preferred Stock
________________________________
(shares/amount)
Balance at January 1, 2002 26,405 $ 435,154
Cumulative undeclared dividends
on redeemable preferred stock --- 12,674
Exercise of employee stock options --- ---
Exercise of warrants --- ---
Net loss for the nine months ended September 30, 2002 --- ---
_____________ _____________
Balance at September 30, 2002 26,405 $ 447,828
============= =============
Balance at January 1, 2003 213,655 $ 1,947,774
Cumulative undeclared dividends
on redeemable preferred stock --- 98,194
Cumulative undeclared dividends
on redeemable preferred stock
classified as interest --- 34,096
Conversion of preferred common stock (550) (9,416)
Exercise of warrants --- ---
Net loss for the nine months ended
September 30, 2003 --- ---
_____________ _____________
Balance at September 30, 2003 213,105 $ 2,070,648
============= =============
The accompanying notes are an integral part of the financial statements.
-8-
IGENE Biotechnology, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Deficit
(Unaudited - Continued)
Accumulated
Additional Other Total
Common Stock Paid-in Comprehensive Stockholders'
(shares/amount) Capital Deficit Income(Loss) Deficit
_________________________ _____________ _____________ _____________ _____________
Balance at January 1, 2002 75,848,600 $ 758,486 $ 22,188,836 $(33,930,523) --- $(10,983,201)
Cumulative undeclared dividends
on redeemable preferred stock --- --- (12,674) --- --- (12,674)
Issuance of common stock in
lieu of cash in payment of
interest on subordinate debenture 40,000 400 89,600 --- --- 90,000
Issuance of common stock in
lieu of cash in payment for
consulting fee 12,000,000 120,000 180,000 --- --- 300,000
Shares issued for manufacturing agreement 3,064,496 30,645 78,478 --- --- 109,124
Comprehensive loss:
Net loss for the nine months ended
September 30, 2002 --- --- --- (2,745,038) --- (2,745,038)
Other comprehensive income-
Foreign currency translation --- --- --- --- 98,313 98,313
Total comprehensive loss --- --- --- --- --- (2,646,725)
____________ __________ _____________ _____________ _____________ _____________
Balance at September 30, 2002 90,953,096 $ 909,531 $ 22,524,240 $(36,675,561) $ 98,313 $(13,143,477)
============ ========== ============= ============= ============= =============
Balance at January 1, 2003 92,943,746 $ 929,437 $ 22,387,604 $(37,120,502) --- $(13,803,461)
Cumulative undeclared dividends
on redeemable preferred stock --- --- (98,194) --- --- (98,194)
Cumulative undeclared dividends
on redeemable preferred stock
classified as interest --- --- --- --- --- ---
Shares received and retired in
ProBio Sale (7,000,000) (70,000) (140,000) --- --- (210,000)
Conversion of preferred stock to common 1,100 11 9,405 --- --- 9,416
Shares issued for manufacturing agreement 2,066,541 20,666 70,896 --- --- 91,562
Net loss for the nine months ended
September 30, 2003 --- --- --- (1,558,556) --- (1,558,556)
____________ __________ _____________ _____________ _____________ _____________
Balance at September 30, 2003 88,011,387 $ 880,114 $ 22,229,711 $(38,679,058) $ --- $(15,569,233)
============ ========== ============= ============= ============= =============
The accompanying notes are an integral part of the financial statements.
-9-
IGENE Biotechnology, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended
___________________________________
September 30, September 30,
2003 2002
_______________ _______________
Cash flows from operating activities
Net loss $ (1,558,556) $ (2,745,038)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation 16,596 39,647
Amortization 54,729 87,386
Consulting cost paid in shares of common stock --- 300,000
Foreign currency translation adjustment --- 98,313
Manufacturing cost paid in shares of common stock 91,562 109,122
Interest on debenture paid in shares of common stock --- 90,000
Equity in earnings (loss) of unconsolidated sub 569,000 ---
Decrease (increase) in:
Accounts receivable 403,724 (228,819)
Inventory 374,709 (162,876)
Prepaid expenses and other current assets 264,478 36,415
Increase (decrease) in:
Accounts payable and accrued expenses (199,703) 929,520
_______________ _______________
Net cash provided by/(used in)operating activities 16,539 (1,446,330)
_______________ _______________
Cash flows from investing activities
Advances to joint venture (278,691) ---
Capital (expenditures) & sales 7,194 (204,074)
_______________ _______________
Net cash used by investing activities (271,497) (204,074)
_______________ _______________
Cash flows from financing activities
Proceeds (repayment) from borrowing (250,000) 1,300,000
Increase in preferred stock for the cumulative dividend
classified as interest 34,096 ---
Proceeds of long-term debt --- (1,733)
_______________ _______________
Net cash (used) provided by financing activities (215,904) 1,298,267
_______________ _______________
Net decrease in cash and cash equivalents (470,862) (352,137)
Cash and cash equivalents at beginning of period 497,711 394,487
_______________ _______________
Cash and cash equivalents at end of period $ 26,849 $ 42,350
=============== ===============
Supplementary disclosure and cash flow information
__________________________________________________
Cash paid for interest $ 72,964 $ 67,973
Cash paid for income taxes --- ---
See Note (2) for non-cash investing and financing activities.
The accompanying notes are an integral part of the financial statements.
-10-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Financial Statements
(1) Unaudited consolidated financial statements
The September 30, 2003, consolidated financial statements
presented herein are unaudited, and in the opinion of
management, include all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation
of financial position, results of operation and cash flows.
Such financial statements do not include all of the
information and footnote disclosures normally included in
financial statements prepared in accordance with accounting
principles generally accepted in the United States of
America. This quarterly report on Form 10-QSB should be
read in conjunction with Igene's Annual Report on Form 10-
KSB for the year ended December 31, 2002.
(2) Noncash investing and financing activities
During the nine months ended September 30, 2003 and 2002,
the Company recorded in each quarter dividends in arrears on
8% redeemable preferred stock cumulating at $.48 per share
aggregating $12,290 and $12,674 respectively, on Series A
preferred stock and during the nine months ended September
30, 2003 Igene recorded dividends in arrears of $.64 per
share aggregating $120,000 on Series B preferred stock,
which has been removed from paid-in capital for the first
and second quarter and recorded as interest expense in the
third quarter and included in the carrying value of the
redeemable preferred stock. In accordance with FASB 150, the
dividends accrued in the third quarter 2003 and thereafter
have been reclassified to interest expense. This
reclassification reduces income by $34,096.
During the nine months ended June 30, 2003, the Company
entered into a Joint Venture Agreement with Tate & Lyle
Fermentation Products Ltd. ("Tate") Pursuant to a Joint
Venture Agreement, the Company and Tate agreed to form a
joint venture (the "Joint Venture") to manufacture, market
and sell Astaxanthin and derivative products throughout the
world for all uses other than as a Nutraceutical or
otherwise for direct human consumption. Tate contributed
$24,600,000 in cash to the Joint Venture, while the Company
transferred to the Joint Venture its technology relating to
the production of Astaxanthin and assets related thereto.
These assets will continue to be used by the Joint Venture
in the same manner as historically used by the Company. The
Company and Tate each have a 50% ownership interest in the
Joint Venture and equal representation on the Board of
Directors of the Company. The value of the Company's
investment in the Joint Venture has been recorded at an
amount equal to the book value of the Registrant's
consideration contributed at the creation of the Joint
Venture. As the cost of the Company's technology and
intellectual property has been previously expensed and has a
carrying amount of zero, the investment in the Joint Venture
has been initially recorded with a book value of $316,869,
which represents the unamortized production costs
contributed to the Joint Venture. In addition to the
Company's initial investment in the Joint Venture, the
Company has made $278,691 in advances to the Joint Venture.
On February 4, 2003, Igene sold its subsidiary ProBio to
Fermtech AS in exchange for aggregate consideration valued
at approximately $343,000, consisting of 7,000,000 shares of
Igene common stock that ProBio owned (including 2,000,000
shares that were placed into escrow and may be reissued to
Fermtech as described below), valued for the purposes of the
acquisition at $.03 per share, plus forgiveness of
approximately $168,000 of debt that Igene owed to ProBio at
the time of purchase in 2001. Provided Mr. Benjaminsen
remains employed by Igene through 2003, 1,000,000 of the
escrowed shares of common stock will be delivered to
Fermtech. If Mr. Benjaminsen remains employed by Igene
through 2004, the remaining 1,000,000 escrowed shares will
be released from escrow and delivered to Fermtech.
During the nine months ended September 30, 2003, the Company
extended scheduled repayment on demand notes of $6,043,659
and related accrued interest of $2,865,810 until March 31,
2006.
During the nine months ended September 30, 2002 the Company
issued 40,000 shares of common stock in payment of interest
on the variable rate subordinated debenture. If paid in
cash, the interest would have been payable at 12% in the
amount of $90,000. Shares may be issued in lieu of cash
under the terms of the debenture agreement at the higher of
$2.25 per share or market price per share. The stock was
issued and related interest was paid at $2.25 per share, or
$90,000.
-11-
IGENE Biotechnology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
(2) Noncash investing and financing activities - continued
During the nine months ended September 30, 2002, Igene
issued and sold $300,000 in aggregate principal amount of 8%
convertible debentures to certain directors of Igene. These
debentures are convertible into shares of Igene's common
stock at $.03 per share. In consideration of the commitment
to purchase the 8% convertible debenture, these directors
also received an aggregate of 10,000,000 warrants to
purchase common stock at $.03 per share. These debentures,
if not converted earlier, become due on July 17th 2012.
During the nine months ended September 30, 2002, the Board
of Directors, in an attempt to ascertain a manufacturing
partner, authorized retention of the services of Mr. Martin
Gerson. The expected term of the service is for two (2)
years. In compensation for this service, Mr. Gerson was
awarded 12,000,000 shares of Igene common stock.
(3) Foreign Currency Translation and Transactions
Since the day-to-day operations of Igene's foreign
subsidiary in Chile are dependent on the economic
environment of the parent's currency, the financial position
and results of operations of Igene Chile are determined
using Igene's reporting currency (US dollars) as the
functional currency. All exchange gains and losses from
remeasurement of monetary assets and liabilities that are
not denominated in US dollars are recognized currently in
income. These losses and gains occur primarily as a result
of the effect of valuation of the Chilean Peso on Igene's
accounts receivables, which are mostly denominated in Pesos.
(4) Joint Venture
On March 18, 2003, 2003, the Company entered into a Joint
Venture Agreement with Tate & Lyle Fermentation Products
Ltd. ("Tate"). Pursuant to a Joint Venture Agreement, the
Company and Tate agreed to form a joint venture (the "Joint
Venture") to manufacture, market and sell Astaxanthin and
derivative products throughout the world for all uses other
than as a Nutraceutical or otherwise for direct human
consumption. Tate contributed $24,600,000 in cash to the
Joint Venture, while the Company has agreed to contribute to
the Joint Venture its technology relating to the production
of Astaxanthin and assets related thereto. These assets will
continue to be used by the Joint Venture in the same manner
as historically used by the Company. The Company and Tate
each have a 50% ownership interest in the Joint Venture and
equal representation on the Board of Directors of the Joint
Venture Company. Unamortized production costs in the amount
of $316,869 were contributed to the Joint Venture and has
been recorded as the initial cost of the investment.
The Joint Venture is accounted for under the equity method.
Astaxanthin revenue is recorded on the books of the Joint
Venture. Certain costs incurred by Igene are reimbursed by
the Joint Venture. These reimbursements are reported as a
contra amount in the Operating Expense section of the
Igene's Consolidated Statements of Operations.
Igene's share of the losses in the Joint Venture will be
recognized only to the extent of Igene's consideration paid
for and its consideration exchanged for its ownership
portion of the Joint Venture as well as any advances made to
the Joint Venture. Losses in excess of Igene's
consideration and advances will not be recognized in Igene's
Financial Statements but will be carried forward and will
offset future income of the Joint Venture, if any. Igene
does not expect to recognize income from the Joint Venture
until all accumulated unrecognized losses have been
eliminated.
(5) Inventories
As part of the Joint Venture Agreement, inventory is
maintained by the Joint Venture. As a result, Igene sold
the remainder of its inventory and plans to no longer
maintain inventory. December 31, 2002 figures for inventory
are stated at lower of cost, on a first-in first-out basis,
or market value; work in process, and finished goods
represents product manufactured and held for sale.
Inventory at December 31, 2002 was as follows:
-12-
Notes to Consolidated Financial Statements
IGENE Biotechnology, Inc. and Subsidiaries
(continued)
December 31,
2002
______________
Work-in-process - AstaXin(R) $ 11,308
Finished goods - AstaXin(R) 363,401
______________
Total inventory $ 374,709
==============
(6) Stockholders' Equity (Deficit)
As of September 30, 2003 and 2002, 51,210 and 52,810 shares
respectively of authorized but unissued common stock were
reserved for issue upon conversion of the Company's
outstanding preferred stock.
As of September 30, 2003 and 2002, 74,604,500 shares of
authorized but unissued common stock were reserved for
distribution and exercise pursuant to the Company's Employee
Stock Option Plans.
As of September 30, 2003, 6,666,666 shares of authorized but
unissued common stock were reserved for distribution and
exercise pursuant to a stock option agreement with past
officers of the Company, which options shall be valid and
executable until January 22, 2004.
As of September 30, 2003 and 2002, 17,565,970 and 13,174,478
shares, respectively, of authorized but unissued common
stock were reserved for the conversion of outstanding
convertible promissory notes held by directors of the
Company.
As of September 30, 2003 and 2002, 66,427,651 shares of
authorized but unissued common stock were reserved for the
conversion of outstanding convertible promissory notes in
the aggregate amount of $3,814,212 held by directors of the
Company.
As of September 30, 2003 and 2002, 10,000,000 shares of
authorized but unissued common stock were reserved for the
conversion of outstanding convertible promissory notes
issued as part of the purchase of ProBio.
As of September 30, 2003 and 2002, 198,016,073 shares,
respectively, of authorized but unissued common stock were
reserved for the exercise of outstanding warrants.
As of September 30, 2003 and 2002, 9,629,997 and 11,892,485
shares, respectively, of authorized but unissued common
stock were reserved for issuance to the Company's contract
manufacturer pursuant to the terms of the current
manufacturing contract.
As of September 30, 2002, 40,000 shares of authorized but
unissued common stock were reserved for issuance for payment
of interest on the variable rate subordinated debenture.
(7) Basic and diluted net loss per common share
Basic and diluted net loss per common share for the nine-
month periods ended September 30, 2003 and 2002 is based on
87,314,094 and 91,147,995, respectively, of weighted average
common shares outstanding. For purposes of computing net
loss per common share, the amount of net loss has been
increased by cumulative undeclared dividends in arrears on
preferred stock dividends in arrears on 8% redeemable
preferred stock cumulating at $.48 per share aggregating
$12,290 and $12,674 respectively, on Series A preferred
stock and during the nine months ended September 30, 2003
Igene recorded dividends in arrears of $.64 per share
aggregating $120,000 on Series B preferred stock, which has
been removed from paid-in capital for the first and second
quarter and recorded as interest expense in the third
quarter and included in the carrying value of the redeemable
preferred stock. In accordance with FASB 150, the dividends
accrued in the third quarter 2003 and thereafter have been
reclassified to interest expense. This classification
reduces income by $34,096. No adjustment has been made for
any common stock equivalents outstanding because their
effects would be antidilutive.
-13-
Notes to Consolidated Financial Statements
IGENE Biotechnology, Inc. and Subsidiaries
(continued)
(8) Income Taxes
The Company uses the liability method of accounting for
income taxes as required by SFAS No. 109, "Accounting for
Income Taxes". Under the liability method, deferred-tax
assets and liabilities are determined based on differences
between the financial statement carrying amounts and the tax
bases of existing assets and liabilities (i.e., temporary
differences) and are measured at the enacted rates that will
be in effect when these differences reverse. Deferred
income taxes will be recognized when it is deemed more
likely than not that the benefits of such deferred income
taxes will be realized; accordingly, all net deferred income
taxes have been eliminated by a valuation allowance.
(9) Contingency - Litigation
Previously reported litigation (original lawsuit filed July
21, 1997, U.S. District Court, Baltimore, MD) between Archer
Daniels Midland, Inc. ("ADM") and Igene, involving
allegations of patent infringement and counterclaims
concerning the theft of trade secrets, was resolved on
September 29, 2003. Resolution of the dispute between ADM
and Igene did not result in an unfavorable outcome to
Igene. Accordingly, no liability has been or is recorded in
the balance sheet. Igene will continue to make and sell its
product, AstaXin(R).
(10) Uncertainty
Igene has incurred net losses in each year of its existence,
aggregating approximately $38,500,000 from inception to
September 30, 2003 and its liabilities and redeemable
preferred stock exceeded its assets by approximately
$3,476,000 at that date. These factors indicate that Igene
will not be able to continue in existence unless it is able
to raise additional capital and attain profitable
operations.
The continuing successful marketing of Igene's product,
AstaXin(R), has permitted Igene the opportunity to attract
additional capital through it's venture with Tate and Lyle.
Igene began manufacturing and selling AstaXin(R) during
1998. Igene will aid the Joint Venture with the
manufacturing process, but will focus on research and sales,
attempting to increase sales and manufacturing levels. Igene
believes this technology to be highly marketable. Igene
hopes to continue increasing sales of AstaXin(R), eventually
achieving gross profits and, subsequently, profitable
operations, although the achievement of these cannot be
assured.
During 2002 Igene continued to fund its operations through
the issuance of warrants and convertible debentures through
direct purchases and loans by directors and other accredited
investors. This provided additional capital of $1,550,000.
(11) Stock Based Compensation
The Company accounts for such plans under the recognition
and measurement principles of APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and related
interpretations. No stock option based employee
compensation cost is reflected in net income, as all options
granted under the plan had an exercise price equal to the
market value of the underlying common stock on the date of
grant. The following table illustrates the effect on net
income and earnings per share if the Company had applied the
fair value recognition provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" and disclosure
provisions of SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure", to stock-based
employee compensation for the three and nine months ended
September 30:
-14-
Notes to Consolidated Financial Statements
IGENE Biotechnology, Inc. and Subsidiaries
(continued)
Three months ended Nine months ended
____________________________ ____________________________
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
_____________ _____________ _____________ _____________
Net loss:
As reported $ (666,199) $ (1,241,390) $ (1,558,556) $ (2,745,039)
Less pro forma stock-based employee
compensation expense determined under fair
value based method net of related tax
effects (159,578) (171,250) (423,756) (513,750)
_____________ _____________ _____________ _____________
Net loss $ (825,777) $ (1,412,640) $ (1,982,312) $ (3,258,789)
============= ============= ============= =============
Net loss per Share:
Basic - as reported $ (0.01) $ (0.01) $ (0.02) $ (0.03)
Basic - pro forma $ (0.01) $ (0.01) $ (0.02) $ (0.04)
Diluted - as reported $ (0.01) $ (0.01) $ (0.02) $ (0.03)
Diluted - pro forma $ (0.01) $ (0.01) $ (0.02) $ (0.04)
(12) Recent Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board
("FASB") issued Interpretation ("FIN") No. 46 "Consolidation
of Variable Interest Entities" which clarifies the
application of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements". The provision of FIN
No. 46 are effective July 1, 2003 for variable interest
entities created before January 31, 2003. The company
believes that the implementation of the standard will not
have a material effect on its financial statements.
In July 2002, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
No. 146 "Accounting for Costs Associated with Exit or
Disposal Activities" ("SFAS No. 146"). The requirements of
SFAS No. 146 are effective prospectively for qualifying
activities initiated after December 31, 2002. SFAS No. 146
applies to cost associated with an exit activity, including
restructuring, or with a disposal of long-lived assets. The
Statement had no effect on the Company's financial
statements.
In May 2003, The FASB issued SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of Both
Liabilities and Equity" ("SFAS No. 150"), effective for
financial instruments entered into or modified after May 31,
2003. This statement established standards for classifying
and measuring certain financial instruments with
characteristics of both liabilities and equity. It requires
that an issuer classify a financial instrument that is
within the scope of the statement as a liability rather than
as an equity, such as obligations that a reporting entity
can or must settle by issuing its own equity shares. The
Company reclassified its preferred stock to liabilities and
related cumulated dividends were classified as interest
expense in the third quarter of 2003.
-15-
Notes to Consolidated Financial Statements
IGENE Biotechnology, Inc. and Subsidiaries
(continued)
(13) Summary of Significant Activity of Joint Venture
The following statement displays the significant activity
for the joint venture for the period from the initial
investment in the joint venture through September 30, 2003.
Igene's 50% equity interest in the activity is recorded in
Igene's Financial Statements as equity in loss of
unconsolidated Joint Venture:
September 30,
2003
_____________
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 779,000
Accounts receivable 273,000
Inventory 1,026,000
_____________
2,078,000
OTHER ASSETS
Fixed Assets Receivable 21,614,000
Intellectual property 24,614,000
_____________
TOTAL ASSETS $ 48,306,000
=============
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 215,000
_____________
TOTAL LIABILITIES 215,000
Equity 48,091,000
_____________
TOTAL LIABILITIES AND EQUITY $ 48,306,000
=============
Period from
initial investment
September 30, 2003
__________________
(unaudited)
Net Sales $ 597,000
Less: manufacturing cost (536,000)
__________________
Gross Profit 61,000
Less: selling, general and administrative (1,213,000)
__________________
Operating Loss (1,152,000)
Interest Income 14,000
__________________
Net Loss $ (1,138,000)
==================
Igene's 50% equity interest in the net loss $ (569,000)
==================
Igene's share in the net loss in the Joint Venture will be
recognized only to the extent of Igene's consideration
exchanged for it's ownership portion of the Joint Venture as
well as any advances made to the Joint Venture. Losses in
excess of Igene's consideration and advances will not be
recognized in Igene's Financial Statements but will be
carried forward and will offset future income of the Joint
Venture, if any.
-16-
Item 2. Management's Discussion and Analysis
IGENE Biotechnology, Inc. and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
CAUTIONARY STATEMENTS FOR PURPOSES OF "SAFE HARBOR PROVISIONS" OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:
EXCEPT FOR HISTORICAL FACTS, ALL MATTERS DISCUSSED IN THIS
REPORT, WHICH ARE FORWARD LOOKING, INVOLVE A HIGH DEGREE OF RISKS
AND UNCERTAINTIES. POTENTIAL RISKS AND UNCERTAINTIES INCLUDE,
BUT ARE NOT LIMITED TO, COMPETITIVE PRESSURES FROM OTHER
COMPANIES AND WITHIN THE BIOTECH INDUSTRY, ECONOMIC CONDITIONS IN
THE COMPANY'S PRIMARY MARKETS AND OTHER UNCERTAINTIES DETAILED
FROM TIME-TO-TIME IN THE COMPANY'S SECURITIES AND EXCHANGE
COMMISSION FILINGS.
CERTAIN STATEMENTS IN THIS REPORT SET FORTH MANAGEMENT'S
INTENTIONS, PLANS, BELIEFS, EXPECTATIONS OR PREDICTIONS OF THE
FUTURE BASED ON CURRENT FACTS AND ANALYSES. ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH STATEMENTS, DUE TO
A VARIETY OF FACTORS INCLUDING REDUCED PRODUCT DEMAND, INCREASED
COMPETITION, CURRENCY FLUCTUATIONS, AVAILABILITY OF PRODUCTION
CAPACITY, GOVERNMENT ACTION, WEATHER CONDITIONS, AND OTHER
FACTORS.
Critical Accounting Policies
____________________________
The preparation of our financial statements in conformity
with accounting principles generally accepted in the U.S.
requires management to make judgments, assumptions and estimates
that affect the amounts reported in our financial statements and
accompanying notes. Actual results could differ materially from
those estimates. The following are critical accounting policies
important to our financial condition and results presented in the
financial statements and require management to make judgments and
estimates that are inherently uncertain:
Our inventories are stated at the lower of cost or market.
Cost is determined using a weighted-average approach, which
approximates the first-in first-out method. If the cost of the
inventories exceeds their expected market value, provisions are
recorded for the difference between the cost and the market
value. Inventories consist of currently marketed products.
Legal proceedings as discussed in Item 1, "Legal
Proceedings," in Part II have not resulted in an unfavorable
outcome to Igene. Accordingly, no liability has been reflected
in the September 30, 2003 balance sheet.
The Joint Venture recognizes revenue from product sales when
there is persuasive evidence that an arrangement exists, delivery
has occurred, the price is fixed and determinable, and
collectibility is reasonably assured. Allowances are established
for estimated uncollectible amounts, product returns and
discounts.
The Joint Venture as referred to in the following Recent
Developments paragraph, will enter into a lease of real property
with an affiliate of Tate & Lyle in Selby, England upon which a
new manufacturing facility will be constructed and operated by
the Joint Venture. The Joint Venture is accounted for under the
equity method of accounting as the company has a 50% ownership
interest.
Recent Developments
___________________
On March 18, 2003, Igene Biotechnology, Inc. (the "Company")
entered into a Joint Venture Agreement (the "JV Agreement") with
Tate & Lyle Fermentation Products Ltd. ("Tate"). Pursuant to the
JV Agreement, the Company and Tate agreed to form a Joint Venture
(the "Joint Venture") to manufacture, market and sell Astaxanthin
and derivative products throughout the world for all uses other
than as a Nutraceutical or otherwise for direct human
consumption. Tate has contributed $24,614,000 in cash to the
Joint Venture, while the Company has contributed to the Joint
Venture its technology relating to the production of Astaxanthin
and assets related thereto. These assets will continue to be
used by the Joint Venture in the same manner as used by the
Company. Each of Igene and Tate has a 50% ownership interest in
the Joint Venture and has equal representation on the Board of
Directors of the Joint Venture Company.
-17-
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Results of Operations
_____________________
Sales and other revenue
As part of the Joint Venture agreement, all further sales
are recognized through the venture company. Therefore, Igene
recorded no sales of AstaXin(R) during the quarter ended
September 30, 2003. Sales of AstaXin(R) during the quarter ended
September 30 2002, were $1,240,278. Sales for the nine month
period ended September 30, 2003 and 2002, were $463,486 and
$2,409,193, respectively, a decrease of $1,945,707 or 80.7%.
Sales had been limited in the past quarters due to
insufficient production quantity. However, the primary cause for
the decreased sales for the nine month period ended September 30,
2003 as compared with the comparable nine month period ending
September 31, 2002, is that, as of June, 2003, Igene had sold
its remaining inventory in anticipation of the consummation
of the JV Agreement. Management anticipates that the joint
venture with Tate & Lyle will provide a more dependable product
flow. However, there can be no assurance of the dependability
of production, or that any increases in production or sales will
occur, or that if they occur, they will be material.
Cost of sales and gross profit
As with Sale Revenue, future Cost of Sale and Gross Profit
will be recognized through the venture company. Igene reported
no gross profit on sales of AstaXin(R) for the quarter ended
September 30, 2003. Gross profit on sales of AstaXin(R) was
$18,540 for the nine month period ended September 30, 2003 which
is a decrease of $219,342 from the $237,882 for the nine months
ended September 30, 2002. Gross profit fell from 10% of sales
for the nine months ended September 30, 2002, to 4% for the nine
months ended September 30, 2003. The Company attributes the fall
in gross profit to a combination of pricing pressure in the
market and inefficiencies in production. Demand is expected to
increase both due to seasonal increases in customer usage and
increases in our market share. Management expects that sales and
gross profits may be limited by the quantities of AstaXin(R) the
Company is able to produce with its presently available capacity
with its contract manufacturer, while the Joint Venture prepares
to produce product. If is felt the lack of capacity should be
alleviated as the joint venture plant begins production in 2004.
Sales and gross profit growth, if any, may be limited unless
augmented by these increases in production, as well as production
efficiency resulting from process research and development.
Management expects the level of gross profit to improve in the
future as a percentage of sales, with expected increases in
production efficiency received from the Joint Venture with Tate &
Lyle offsetting pricing competition, but can provide no
assurances in that regard to future increased production or
future increased margin.
No cost of sales for the quarter ended September 30, 2003
were recorded as compared with cost of sales of $1,136,670, for
the quarter ended September 30, 2002.
Marketing and selling expenses
For the quarters ended September 30, 2003 and 2002, Igene
recorded Marketing Expense in the amount of $57,265 and $133,635,
respectively, a decrease of $76,370 or 57%. For the nine months
ended September 30, 2003 and 2002, Igene recorded Marketing
Expense in the amount of $277,120 and $405,052, respectively, a
decrease of $185,197 or 46%. As a result of the disposition of
ProBio, Igene has reduced selling costs that were incurred as
part of the combination, such as increased sales force. In
addition, the reduction of salable product currently available to
Igene from its current manufacturer has caused a corresponding
reduction in Marketing and Selling expense. As a result of the
Joint Venture with Tate and Lyle, Igene is expecting an increase
in salable product with a corresponding increase in sales costs
at the point the new facility is in production. However, no
assurances can be made in regards to increased production from
the new facility nor the corresponding increase in selling costs.
-18-
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Research, development and pilot plant expenses
For the quarters ended September 30, 2003 and 2002, Igene
recorded research and development costs in the amount of $198,195
and $162,540, respectively, an increase of $35,655 or 22%. For
the nine months ended September 30, 2003 and 2002, Igene recorded
Research and development costs in the amount of $576,596 and
$484,557, respectively, an increase of $92,039 or 19%.
Additionally costs increased in support of increasing the
efficiency of the manufacturing process through experimentation
in the Company's pilot plant, developing higher yielding strains
of yeast and other improvements in the Company's AstaXin(R)
technology. Igene is hoping this will lead to an increase in
salable product at a reduced cost to Igene and the Joint Venture.
However no assurances can be made that regard. These costs are
currently funded through reimbursement from the Joint Venture.
Operating expenses
General and administrative expenses for the quarters ended
September 30, 2003 and 2002 were $172,804 and $540,674,
respectively, a decrease of $367,870 or 68%. For the nine months
ended September 30, 2003 and 2002, Igene recorded General and
administrative expenses in the amount of $557,131 and $928,669,
respectively, an increase of $371,538 or 40%. This decrease is
due mainly to a one time charge for shares issued as
compensation. The Board of Directors, in further attempts to
ascertain a manufacturing partner, had authorized retention for
the services of Mr. Martin Gerson. In compensation for this
service, Mr. Gerson was awarded 12,000,000 shares of Igene common
stock. As there is only an expectation for term of service but
no requirement, the total estimated compensation of $300,000 was
expensed during the third quarter. In addition, as with
Marketing and Research, the disposition of ProBio has reduced
general and administrative costs that were incurred as part of
the combination, such as increased management expenses.
Litigation expenses
Previously reported litigation (original lawsuit filed July
21, 1997, U.S. District Court, Baltimore, MD) between Archer
Daniels Midland, Inc. ("ADM") and Igene, involving allegations of
patent infringement and counterclaims concerning the theft of
trade secrets, was resolved on September 29, 2003. Resolution of
the dispute between ADM and Igene did not result in an
unfavorable outcome to Igene. Igene will continue to make and
sell its product, AstaXin(R). The Company incurred $75,610 of
litigation expenses for nine months ended September 30, 2003.
Expenses reimbursement by Joint Venture
As part of the Joint Venture agreement, costs incurred by
Igene related to production, research and development, as well as
those related to the marketing of AstaXin(R), are considered
costs of the joint venture and therefore are reimbursed by the
Joint Venture. For the quarter ended September 30, 2003, costs
reimbursed by the Joint Venture totaled $327,310. For the nine
months ended September 30, 2003, the Joint Venture reimbursed
expenses totaling $891,691.
Interest expense
Interest expense for the quarters ended September 30, 2003
and 2002 was $267,635 and $300,520, respectively, a decrease of
$32,885 or 11%. The interest expense was almost entirely
composed of interest on the Company's long term financing from
its directors and other stockholders, and interest on the
Company's subordinated debenture in both periods. However,
$34,096 in cumulative dividends accrued in the quarter ended
September 30, 2003 from preferred stock was recorded as part of
interest expense.
-19-
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Equity in earnings of unconsolidated venture
As a result of the Joint Venture, the production, sales and
marketing of Astaxanthin now take place in the unconsolidated
Joint Venture subsidiary. For the quarter ended September 30,
2003, Igene's portion of the Joint Venture loss was $222,000.
The loss was a result of a 50% interest in the following: Gross
profit for the quarter was $50,000 on sales of $495,000, less
manufacturing cost of $445,000. Selling and general and
administrative expenses for the period were $497,000 and interest
income was $3,000. The resulting loss before tax was $444,000.
For the quarter ended September 30, 2003, Igene's 50% portion of
the Joint Venture loss was $222,000.
For the nine-month period ended September 30, 2003, Igene's
portion of the Joint Venture loss was $569,000. The loss was a
result of a 50% interest in the following: Gross profit for the
nine months ended September 30, 2003 was $61,000 on sales of
$597,000, less manufacturing cost of $536,000. Selling and
general and administrative expenses for the period were
$1,213,000 and interest income was $14,000. The resulting loss
before tax was $1,138,000. For the nine-month period ended
September 30, 2003, Igene's 50% portion of the Joint Venture loss
was $569,000.
Disposition of ProBio Subsidiary
As reported on Form 8-K filed on February 20, 2003, the
Company, in an effort to focus on and grow its core business,
disposed of all 10,000 of the issued and outstanding shares of
capital stock of its former subsidiary, ProBio Nutraceuticals,
AS, a Norwegian corporation. Fermtech AS, a joint stock company
incorporated in the Kingdom of Norway and owned equally by our
then chief executive officer, Stein Ulve and our then-chief
marketing officer, Per Benjaminsen, purchased the shares of
ProBio. Mr. Ulve resigned as CEO and director of Igene and Mr.
Benjaminsen no longer acts as our chief marketing officer,
effective December 31, 2002, though Mr. Benjaminsen has
maintained a position with Igene.
The amount of consideration paid for ProBio was determined
through arms-length negotiations between Igene management, on
behalf of Igene, and Mr. Ulve, on behalf of Fermtech. In
determining the amount paid for the ProBio shares consideration
was given of ProBio's cash flow, cash position, revenue and
revenue prospects.
The equipment and other physical property disposed of
belonging to ProBio included inventory, personal computers, a web
site and trademark, other office equipment and furniture, and
accounts receivables and accounts payables related to
nutraceuticals. For the nine months ended September 30, 2002,
the net operating loss of the division being sold as ProBio was
$340,632 on sales of $1,555,014 and is reflected on the September
30, 2002 income statement as loss from discontinued operations.
Gain on disposition
Igene sold ProBio to Fermtech AS in exchange for aggregate
consideration valued at approximately $343,000, consisting of
7,000,000 shares of Igene common stock that was owned by ProBio
(including 2,000,000 shares that were placed into escrow and may
be reissued to Fermtech as described below), valued for the
purposes of the acquisition at $.03 per share, plus forgiveness
of approximately $168,000 of debt that Igene owed to ProBio at
the time of purchase in 2001. Provided Mr. Benjaminsen remains
employed by Igene through 2003, 1,000,000 of the escrowed shares
of common stock will be delivered to Fermtech. If Mr. Benjaminsen
remains employed by Igene through 2004, the remaining 1,000,000
escrowed shares will be released from escrow and delivered to
Fermtech. Gain on disposal during the first quarter of 2003 was
$237,427. This gain was a one-time occurrence as a result of the
disposition of the assets and liabilities associated with ProBio.
-20-
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Net loss and basic and diluted net loss per common share
As a result of the foregoing, the Company reported net
losses of $666,199 and $1,241,389, respectively, for the quarters
ended September 30, 2003 and 2002, a decrease in the loss of
$575,190 or 46%. This represents a loss of $.01 per basic and
diluted common share in each of the quarters ended September 30,
2003 and 2002. The weighted average number of shares of common
stock outstanding of 88,011,387 and 81,879,107, for the quarters
ended September 30, 2003 and 2002, respectively, has increased by
6,132,280 shares. This resulted from the issuance of 194,400
shares of common stock in exercise of warrant, 12,000,000 shares
issued to Mr. Gerson as manufacturing agent, 2,262,488 shares
issued to the manufacturer as part of the agreement, 1,600,000
shares issued to Mr. Hiu and Mr. Monahan in lieu of compensation,
reduced by the retirement of 7,000,000 shares retired as part of
the disposition of ProBio.
Financial Position
During the nine-month periods ended September 30, 2003 and
2002, in addition to the joint venture previously discussed, the
following actions also materially affected the Company's
financial position:
o Igene sold or transferred all of its inventory during the
nine months ended September 30, 2003. The result was an
increase in cash of $374,000.
o In addition, accounts receivable and prepaid assets are
being transferred to the Joint Venture, which has increased
cash by $125,033 from the reductions in accounts receivable
and $264,478 from the reductions of prepaid assets.
o Increased cash flow has allowed for uses of operating cash
to reduce accounts payable and accrued expenses by
$199,703.
o The carrying value of redeemable preferred stock was
increased and paid-in capital available to common
shareholders was decreased by $12,290, reflecting
cumulative unpaid dividends on redeemable preferred stock.
o During the nine months ended September 30, 2003, $250,000
cash was used for the repayment of borrowings.
In December 1988, as part of an overall effort to contain
costs and conserve working capital, Igene suspended payment of
the quarterly dividend on its preferred stock. Resumption of the
dividend will require significant improvements in cash flow.
Unpaid dividends cumulate for future payment or addition to the
liquidation preference or redemption value of the preferred
stock. During the nine months ended September 30, 2003 and 2002,
the Company recorded in each quarter dividends in arrears on 8%
redeemable preferred stock cumulating at $.48 per share
aggregating $12,290 and $12,674 respectively, on Series A
preferred stock and during the nine months ended September 30,
2003 Igene recorded dividends in arrears of $.64 per share
aggregating $120,000 on Series preferred stock, which has been
removed from paid-in capital for the first and second quarter
and recorded as interest expense in the third quarter and
included in the carrying value of the redeemable preferred stock.
In accordance with FASB 150, the dividends accrued in the third
quarter 2003 and thereafter have been reclassified to interest
expense. This classification reduces income by $34,096. No
adjustment has been made for any common stock equivalents
outstanding because their effects would be antidilutive.
Liquidity and Capital Resources
Historically, Igene has been funded primarily by equity
contributions and loans from stockholders. As of September 30,
2003, Igene had working capital of $171,351, and cash and cash
equivalents of $26,849.
Cash provided by operating activities during the nine-month
period ended September 30, 2003 amounted to $16,539 as compared
to cash used by operating activities during the nine-month period
ended September 30, 2002 of $1,446,330.
Cash used by investing activities for the nine months ended
September 30, 2003 and 2002 was $215,904 and $204,074,
respectively.
-21-
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Cash was used by financing activities in repayment of loans
in the amount of $215,904 for the nine-month period ended
September 30, 2003 as opposed to the $1,298,267 provided by
financing activities for the nine-month period ended September
30, 2002. Financing activities consisted principally of notes
from directors.
Over the next twelve months, Igene believes it will need
additional working capital. Igene hopes to achieve profits from
sales of AstaXin(R) through the joint venture. This funding is
expected to be received from the new venture with Tate & Lyle.
However, there can be no assurance that projected profits, if
any, from sales, or additional funding from the joint venture
will be sufficient for Igene to fund its continued operations.
The Company does not believe that inflation has had a
significant impact on its operations during the nine-month
periods ended September 30, 2003 and 2002.
Item 3. Controls and Procedures
As of the end of the most recently completed fiscal quarter, the
Company's management, with the participation of the principal
executive officer and principal financial officer, has evaluated
the effectiveness of the Company's disclosure controls and
procedures, and has concluded that the Company's disclosure
controls and procedures are effective to ensure that information
required to be disclosed by the Company in the reports that it
files or submits under the Securities Exchange Act of 1934, as
amended, is accumulated and communicated to the Company's
management, including its principal executive officer and
principal financial officer, as appropriate to allow timely
decisions regarding required disclosure and are effective to
ensure that such information is recorded, processed, summarized
and reported within the time periods specified in the SEC's rules
and forms.
There were no changes in Igene's internal control over financial
reporting that occurred during the last fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
-22-
IGENE Biotechnology, Inc.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Previously reported litigation (original lawsuit filed July 21,
1997, in the U.S. District Court, Baltimore, MD) between Archer
Daniels Midland, Inc. ("ADM") and Igene, involving allegations of
patent infringement and counterclaims concerning the theft of
trade secrets was resolved on September 29, 2003. ADM had
requested injunctive relief as well as an unspecified amount of
damages, and Igene had filed a $300,450,000 counterclaim
concerning the theft of trade secrets. Resolution of the dispute
between ADM and Igene did not result in an unfavorable outcome to
Igene. Accordingly, no liability is recorded in the balance
sheet. Under the terms of the settlement, Igene is permitted to
continue to make and sell its product, AstaXin(R).
Item 2. Changes in Securities and Use of Proceeds.
Limitation on Payment of Dividends
__________________________________
Dividends on Common Stock are currently prohibited because of the
preferential rights of holders of Preferred Stock. The Company
has paid no cash dividends on its Common Stock in the past and
does not intend to declare or pay any dividends on its Common
stock in the foreseeable future.
Item 3. Defaults Upon Senior Securities.
In December 1988, as part of an overall effort to contain costs
and conserve working capital, the Company suspended payment of
the quarterly dividend on its preferred stock. Resumption of the
dividend will require significant improvements in cash flow.
Unpaid dividends cumulate for future payment or addition to the
liquidation preference or redemption value of the preferred
stock. As of September 30, 2003, total dividends in arrears on
the Company's preferred stock total $251,088 ($9.60 per share)
and are included in the carrying value of the redeemable
preferred stock.
Item 4. Submission of Matters to a Vote of Security Holders.
At the annual meeting of stockholders held on June 13, 2003, the
following matters were submitted to stockholders' vote and were
approved by the requisite number of votes: (1) the election of
six directors of the Company: Stephen F. Hiu, Thomas L. Kempner,
Michael G. Kimelman, Sidney R. Knafel, and Patrick F. Monahan;
and (2) the ratification of the appointment of Stegman & Company
as the Company's independent auditors for the fiscal year ending
December 31, 2003.
Results of the voting were as follows:
Votes Broker
Votes Against or Votes Non-
For Withheld Abstained Votes
__________ __________ __________ __________
(1) Election of Directors
Stephen F. Hiu 59,875,824 178,650 --- ---
Thomas L. Kempner 59,875,824 178,650 --- ---
Michael G. Kimelman 59,875,824 178,650 --- ---
Sidney R. Knafel 59,875,824 178,650 --- ---
Patrick F. Monahan 59,875,824 178,650 --- ---
(2) Ratification of Auditors 59,952,074 91,400 11,000 ---
Item 5. Other Information
None.
-23-
IGENE Biotechnology, Inc.
PART II
OTHER INFORMATION
(continued)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 31(a) - Certification of Principal Executive Officer
pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)
Exhibit 31(b) - Certification of Principal Financial Officer
pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)
Exhibit 32(a) - Certification of Chief Executive Officer
pursuant to 18 U.S.C. SECTION 1350.
Exhibit 32(b) - Certification of Chief Financial Officer
pursuant to 18 U.S.C. SECTION 1350.
(b) Reports on Form 8-K
On May 6, 2003 Igene filed a Current Report on Form 8-K
disclosing the terms for the Joint Venture Agreement entered
into as of March 18, 2003 between Tate & Lyle Fermentation
Products Ltd., a subsidiary of Tate & Lyle PLC and Igene
Biotechnology, Inc.
On October 1, 2003 Igene filed a Current Report on Form 8-K
announcing the resolution of the dispute between ADM and
Igene.
-24-
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IGENE Biotechnology, Inc.
___________________________
(Registrant)
Date July 27, 2005 By /s/ STEPHEN F. HIU
___________________________
STEPHEN F. HIU
President
Date July 27, 2005 By /s/ EDWARD J. WEISBERGER
___________________________
EDWARD J. WEISBERGER
Chief Financial Officer
-25-
EXHIBIT INDEX
Exhibit 31(a) - Certification of Principal Executive Officer
pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)
Exhibit 31(b) - Certification of Principal Financial Officer
pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)
Exhibit 32(a) - Certification of Chief Executive Officer
pursuant to 18 U.S.C. SECTION 1350.
Exhibit 32(b) - Certification of Chief Financial Officer
pursuant to 18 U.S.C. SECTION 1350.
-26-
Exhibit 31(a)
CERTIFICATIONS
______________
I, Stephen F. Hiu, certify that:
1. I have reviewed this quarterly report on Form 10Q-SB/A of
IGENE Biotechnology, Inc.;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and
I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the small business issuer and
have:
(a) Designed such disclosure controls and procedures,
or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the small business issuer,
including its consolidated subsidiaries, is made known
to us by others within those entities, particularly
during the period in which this report is being
prepared;
(b) Designed such internal control over financial
reporting, or caused such internal control over
financial reporting to be designed under our
supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the
preparation of financial statements for external
purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the small business
issuer's disclosure controls and procedures and
presented in this report our conclusions about the
effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the small
business issuer's internal control over financial
reporting that occurred during the small business
issuer's most recent fiscal quarter (the small business
issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably
likely to materially affect, the small business
issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer(s) and
I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the small
business issuer's auditors and the audit committee of the
small business issuer's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material
weaknesses in the design or operation of internal
control over financial reporting which are reasonably
likely to adversely affect the small business issuer's
ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the small business issuer's internal control
over financial reporting.
Date: July 27, 2005
/s/ STEPHEN F. HIU
__________________________
STEPHEN F. HIU
President
Exhibit 31(b)
CERTIFICATIONS
I, Edward J. Weisberger, certify that:
1. I have reviewed this quarterly report on Form 10Q-SB/A of
IGENE Biotechnology, Inc.;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s)
and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the small business issuer and
have:
(a) Designed such disclosure controls and procedures,
or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the small business issuer,
including its consolidated subsidiaries, is made known
to us by others within those entities, particularly
during the period in which this report is being
prepared;
(b) Designed such internal control over financial
reporting, or caused such internal control over
financial reporting to be designed under our
supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the
preparation of financial statements for external
purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the small business
issuer's disclosure controls and procedures and
presented in this report our conclusions about the
effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the small
business issuer's internal control over financial
reporting that occurred during the small business
issuer's most recent fiscal quarter (the small business
issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably
likely to materially affect, the small business
issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer(s)
and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the small
business issuer's auditors and the audit committee of the
small business issuer's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material
weaknesses in the design or operation of internal
control over financial reporting which are reasonably
likely to adversely affect the small business issuer's
ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the small business issuer's internal control
over financial reporting.
Date: July 27, 2005
/s/ EDWARD J. WEISBERGER
___________________________
EDWARD J. WEISBERGER
Chief Financial Officer
Exhibit 32(a)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the IGENE Biotechnology, Inc. (the
"Company") Quarterly Report on Form 10-QSB/A for the period ended
September 30, 2003, as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, Stephen F. Hiu,
President of the Company, certify pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of my knowledge:
(1). The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, as amended; and
(2). The information contained in the Report fairly
presents, in all material respects, the financial
condition and results of operations of the Company.
Date: July 27, 2005 By: /s/ STEPHEN F. HIU
_________________________
STEPHEN F. HIU
President
Exhibit 32(b)
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the IGENE Biotechnology, Inc. (the "Company")
Quarterly Report on Form 10-QSB/A for the period ended September
30, 2003, as filed with the Securities and Exchange Commission on
the date hereof (the "Report"), I, Edward J. Weisberger, Chief
Financial Officer of the Company, certify pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, that, to the best of my knowledge:
(1). The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, as amended; and
(2). The information contained in the Report fairly
presents, in all material respects, the financial
condition and results of operations of the Company.
Date: July 27, 2005 By: /s/EDWARD J. WEISBERGER
____________________________
EDWARD J. WEISBERGER
Chief Financial Officer